UK Budget: Hammond delivers tax and spend as Brexit D-day looms
By Frank Prenesti
Date: Monday 29 Oct 2018
(Sharecast News) - UK Chancellor of the Exchequer Philip Hammond on Monday claimed that the era of austerity was "finally coming to an end" as he unveiled £30bn of extra spending to keep the electorate onside as the gritty end of Brexit talks loomed.
In his final statement before Britain leaves the European Union next March, Hammond latched on to brighter employment and tax receipt forecasts and spent the cash - largely on the NHS - meaning borrowing figures would only be marginally lower than previously planned.
The normally cautious chancellor effectively cashed in an unexpected tax revenue windfall in an attempt to win over hard-Brexiteer Conservative MPs and an electorate growing increasingly restless over cuts to public services first introduced by his sacked predecessor George Osborne.
Hammond said he expected government borrowing this year would be £11.6bn lower than forecast. It was then set to fall from £31.8bn in 2019/20 to £26.7bn in 2020-21, £23.8bn in 2021/22, £20.8bn in 2022/23 and £19.8bn in 2023/24.
However, there were less-than-impressive growth forecasts, as anaemic figures for the next five years showed nothing above 1.6%. The chancellor warned that he would have to deliver an emergency Budget next spring if Brexit talks collapsed and set aside an extra £500m for no-deal Brexit preparations,
'Google tax' to raise £440m
Hammond also imposed a 2% tax on the likes of Facebook, Amazon and Google that won't come in until 2020 and will only apply to those with global revenues in excess of £0.5bn.
Expected to raise £440m in five years, it also appeared to be a drop in the ocean compared with the £60bn the UK collects annually in corporation tax receipts.
The Office for Budget Responsibility (OBR) said buoyant tax receipts and an improved outlook for employment had "delivered the government a significant fiscal windfall since March, sufficient to deliver its objective of a balanced budget by 2025".
"But this had already been swallowed up by...Prime Minister (Theresa May's) promise of more money for the NHS in June, to which the Chancellor has added a further near-term tax and spending giveaway. This leaves the medium-term outlook for government borrowing little changed since March," the OBR said.
It added that the upward revision to cumulative GDP growth "on its own...would have been sufficient to achieve a budget surplus of £3.5bn in 2023-24, meeting the 'fiscal objective' of balancing the budget by 2025".
The NHS funding settlement rises from £7.4bn in 2019-20 to £27.6bn in 2023-24 in gross terms. The final year figure almost devours the £30bn of total extra spending outlined in the Budget.
There were some surprise giveaways, such as an increase in the tax-free personal allowance for lower income earners to £12,500 a year earlier than planned and worth £130, although the bigger bonanza went to higher earners with a £3,650 increase in the upper threshold to £50,000 - a tax cut of £860. In all Hammond shelled out £2.7bn for the measure.
He pledged to spend an extra £2.7bn on the controversial and over-budget universal credit scheme. He allocated £1.7bn in increases, or £1,000 a year, to the work allowance - the amount people can earn before they begin to lose benefits.
The defence forces got an extra £1bn for this year and next, while potholes were deemed more important than school books as £420m was handed over to fix roads and £400m for school equipment. The long-neglected area of social care is to receive an extra £650m, while a £675m fund to help high streets was announced.
Death of PFI
In an attempt to steal some of the opposition Labour Party's territory, Hammond said the government would not sign any more deals under the controversial Private Finance Initiative, which led to the high profile collapse of Carillion.
Hammond said there was compelling evidence PFI did not deliver value for taxpayers or genuinely transfer risk to the private sector.
However, analysts described the move as an "easy win" for the chancellor as there were no longer any new deals in the government pipeline.
On the debt front, Hammond said this had peaked in 2016/17 at 85.2% of GDP and was then forecast to fall from 83.7% this year; to 74.1% in 2023-24.
He added that he would deliver a full fiver year spending review in 2019 setting out priorities for public spending.
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